Abstract
Problem statement: The main objective of this study was to examine the causality relations between financial development, trade openness and economic growth (GDP) for the Turkish economy. Approach: In time series context, recently developed econometric techniques were used: namely the Augmented Dickey-Fuller (ADF) for unit root, Johansen and Juselius (JJ) for cointegration and Granger causality test for causal relationships. Results: The findings of the study showed that while trade openness has a positive effect, financial development has a negative effect on growth. Conclusion: Moreover, the Granger causality test results revealed the presence of bicausal relationship between financial development, trade openness and growth indicating that economic policies aimed at financial development and trade openness have a statistically significant impact on economic growth.
Highlights
Financial development and trade openness policies reduce inefficiency in the production process and positively influence economic growth
In this study, the proxy of trade openness calculated as the ratio of the sum of the exports and imports to GDP and the proxy of financial development calculated as the ratio of M2Y to GDP for Turkey over the period 1989M1 to 2007M11
A necessary condition for testing for a long-run relationship among variables is that these variables are I(1), i.e., stationary in first differences
Summary
Financial development and trade openness policies reduce inefficiency in the production process and positively influence economic growth. Social Sci., 5(1): 33-42, 2009 product; (ii) The proportion of saving channeled to To this end study aims at investigating causal investment and (iii) The marginal productivity of relationships between trade openness, financial capital, (iv) Hedging, facilate the trading, and pooling development and economic growth for Turkey over the of risk, (v) Allocate resources[33,44]. Van Den Berg[58] addresses the causality controversy in six Latin American countries by comparing results from single equation and simultaneous equation models He argues that, first, both imports and exports have positive and distinct effects on economic growth; second, there exists a simultaneity between trade and growth; and impacts of openness on growth are higher and more significant through a simultaneous over a single equation model. Three pillars which are “up-front fiscal adjustment”, “structural reforms” and a “firm exchange rate
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